See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/267407217

Cost-Benefit Analysis of High-Speed Rail Link between Hong Kong and

Mainland China

Article  in  Journal of Engineering Project and Production Management · July 2011

DOI: 10.32738/JEPPM.201107.0005

CITATIONS READS

10 5,909

4 authors:

Ran Tao Sha Liu

Sun Hung Kai Properites Dalian University of Technology
5 PUBLICATIONS   176 CITATIONS    5 PUBLICATIONS   173 CITATIONS   

SEE PROFILE SEE PROFILE

Chun Huang C. M. Tam

Beijing University of Technology City University of Hong Kong
6 PUBLICATIONS   150 CITATIONS    231 PUBLICATIONS   12,757 CITATIONS   

SEE PROFILE SEE PROFILE

All content following this page was uploaded by C. M. Tam on 25 September 2015.

The user has requested enhancement of the downloaded file.

 Journal of Engineering, Project, and Production Management
2011, 1(1), 36-45

Cost-Benefit Analysis of High-Speed Rail Link between

Hong Kong and Mainland China
R. Tao1, S. Liu2, C. Huang1, and C.M. Tam3
1
PhD Student, Department of Building and Construction, City University of Hong Kong, Hong Kong SAR.
2
PhD Student, Department of Building and Construction, City University of Hong Kong, Hong Kong SAR. E-mail:
shalau2@student.cityu.edu.hk (corresponding author).
3
Professor, Department of Building and Construction, City University of Hong Kong, Hong Kong SAR.

Project Management
Received February 17, 2011; received revisions April 11, 2011; April 15, 2011; accepted April 15, 2011
Available online June 25, 2011
_________________________________________________________________________________________ 

Abstract: The Legislative Council in Hong Kong has approved a funding of USD$8.60 billion to build the high-speed
rail (HSR) line linking mainland China. HSR is a break-through technology that allows trains running at a speed over 250
km per hour. The most controversial part of the HSR investment is whether its cost could be compensated by the social
benefits. In this study, a cost-benefit analysis of the Hong Kong to mainland HSR (HKM-HSR) line is carried out. First,
all the direct and indirect costs, and social benefits are defined; then, monetary equivalents are assigned to these elements;
third, all the future values are discounted into present values and aggregated. The results show that the project has a
positive net present value (NPV) up to USD$2,068.49 million, which proves that the investment is worth. In addition,
other transport alternatives, i.e. the existing roadway and conventional railway, are examined and compared with HKM-
HSR, which unveils that HSR has the largest positive NPV among these three passenger transportation modes because of
its excellent performance in ticket revenue, travel time savings and safety improvement.

Keywords: High-speed rail, transport alternatives, cost-benefit analysis, net present value.

_________________________________________________________________________________________ 

1. Introduction project as well (Damart and Roy, 2009). Practically, the

In early 2008, there were more than 10,000 kilometers of
new high-speed rail (HSR) lines in operation around the
world and about 20,000 kilometers were devoted to high
speed services (Campos and De Rus, 2009). The HSR is a
brand new rail technology developed in the 20th century,
which consists of a special infrastructure that allows trains
running at a speed over 250 km per hour. For medium
distances (within 500 kilometers), HSR provides much
competitive advantages over other transportation modes,
i.e. conventional railway, roadway and air transport (De
Rus and Inglada, 1997). The Legislative Council in Hong
Kong approved a funding of USD$8.60 billion to build the
HSR line linking the network of the Mainland on Jan 16,
2010. It will connect Kowloon, Hong Kong in the south
and Guangzhou, Guangdong Province in the north.
Investing in HSR is a significant social decision. The
major consideration of HSR is its high capital cost,
requiring to build the high speed infrastructure at a cost
substantially higher than the conventional railway. The
infrastructure maintenance cost of HSR is comparable
with those of the conventional railway but its building
costs and the acquisition, operation and maintenance costs
of specific rolling stock make it as an expensive option
(De Rus, 2008). However, the public decision makers
should not only focus on the financial costs, but the
potential impacts on the community arising from the
major challenge is how to ensure the social benefits gained
from HSR are high enough to cover its construction and
operating costs. The aim of this paper is to find out
whether the sum of the discounted social benefits during
the lifecycle of the HKM-HSR can outweigh its
investment cost. Cost-benefit analysis (CBA) is employed
as an evaluation tool to compare the net present value
(NPV) of all the direct and indirect costs, and social
benefits. In addition, other relevant transport alternatives,
i.e. roadway and conventional railway, are examined and
compared.
2. Literature Review of HSR
Compared with the conventional railway, HSR adopts a
break-through technology that can shorten the
transportation time and thus increase its market share for
medium range traveling distances. Lots of research works
about economic evaluation of HSR have been conducted
in the past twenty years. Nash (1991) provided a general
assessment of HSR and claimed that the principal benefits
of HSR were the revenue and traffic time savings. He also
pointed out that there was lack of evidence in supporting
that HSR would bring about any environmental and
regional development benefits. At last, Nash (1991)
concluded that HSR was the most cost-effective solution
only for the middle distance range (around 500 kilometers)
transportation. De Rus and Inglada (1997) carried out an
 Cost-Benefit Analysis of High-Speed Rail Link between Hong Kong and Mainland China 37
economic evaluation of the Spanish HSR project by using
the CBA method. The results recommended that the
project should not be carried out in 1987 in that particular
corridor due to its huge negative NPV. Brand (2011) also
applied CBA to the proposed HSR in California and
focused on the calculation of benefits pertaining to
intercity HSR user, highway traveler, and air travelers. He
drew the conclusion that the major benefits included the
revenues derived from HSR user, the HSR user benefits
(consumer surplus) net of fares paid, the travel time
savings to urban commuters, and the value of time savings
to intercity air travelers. A general review of the HSR
developments in Europe was done by Vickerman (1997).
He put forward two main points: first, the HSR had the
natural effect of increasing the concentration of economic
activities among each region; second, HSR could bring
positive development benefits under a careful planning
and ancillary policy intervention. Martin (1997)
established a relationship between the NPV of HSR
projects in terms of their social value, transportation
consumers’ benefits and regional economic impacts. The
results showed that if the NPV was positive, the HSR
project could generate regional growth even if no
bottleneck existed before the project. Dijkman et al. (2000)
presented a CBA of the construction of HSR linking
Schiphol Amsterdam Airport and the German Ruhrgebiet.
The project is proved to be unprofitable under all
scenarios with a negative NPV which is mainly due to the
limited travel time savings of a mere ten to fifteen minutes.
De Rus (2008) summarized eight main benefits of HSR,
i.e. travel time savings, increase in comfort, generation of
new trips, reduction in congestion and delays, reduction in
accidents, reduction in environmental impact, release of
needed capacity in other transportation modes, and wider
regional developments. In addition, he evaluated the HSR
investment within the CBA framework and found that
whether to build HSR or not was largely dependent on the
existing volume of traffic, the expected travel time savings
and the average willingness to pay by potential users, etc.
In accordance with Nickel et al. (2009), HSR had two
main types of benefits, namely the first order effects (i.e.
travel time savings, emission reduction) and the second
order effects (i.e. long-term and short-term job generation,
attraction of new business development, and increase in
property value). In addition, Janic (2011) conducted a
sensitivity analysis of particular savings with respect to
changes of the most influencing factors, i.e. the number of
air transport flights to be substituted after evaluating the
partial substitution of some air transport short-haul flights
with HSR services. Results showed that the HSR
substitutive capacity was not a barrier to develop air
transport/ HSR substitution at the airport. Thereby, in
order to check the stability and reliability of the HKM-
HSR project, sensitivity analysis is applied in this study as
well.
Based on the previous critical review of HSR, whether
a particular HSR investment is cost-effective cannot be
judged unless a full-scale evaluation is provided. However,
research works about evaluation of the economic and
Journal of Engineering, Project, and Production Management, 2011, 1(1), 36-45
social effects of HKM-HSR are of paucity. This paper
intends to apply the CBA method to assess the HSR
project in Hong Kong and determine whether the
aggregated social benefits can justify its investment costs.
3. Cost- Benefit Analysis (CBA)
CBA has been widely used to support the decision making
process in transportation by evaluating the potential social
and economic impacts of each alternative (Tudela et al.,
2006). In accordance with Auzannet (1997), CBA aims to
evaluate a set of direct and indirect effects of a project, its
financial and non-financial effects on a set of economic
agents concerning with the investment. These effects are
then synthesized, after monetary evaluation, to insure a
socio-economic balance which establishes the return on
the investment, with this return being estimated on the
basis of specific indicators. The use of CBA can be traced
back to 1930s: the American Congress indicated that the
federal government should improve navigable waterways
by considering flood control disposals whose expected
benefits exceeded the estimated costs (Flood Control Act
of 1936). Over the last decade, the accuracy of this
technique has been greatly improved with the new
evaluation criteria such as the measurement of the
willingness to pay by the potential passengers, the
reduction of carbon emission and accident risks, etc.
Nowadays, CBA has become one of the most widely
accepted and applied methods in project appraisal for
large-scale infrastructure investments in the public sector
(Nickel et al., 2009).
The proposed research framework of this paper is
presented in Fig. 1. The CBA evaluation process is
divided into four steps. The first is to estimate the total
cost which is composed of the infrastructure costs,
operating costs and external cost. All the future values are
discounted into PV and aggregated as the cumulative PV
of total cost (TC). By applying the same principle, the
cumulative PV of total social benefit (TSB), which
consists of five main components, can be worked out in
the second step. The third is to subtract TC from TSB, so
that the project NPV could be obtained for the project
appraisal. In order to further support the approval of HSR
investment, additional comparisons of HSR with other
relevant transport alternatives, i.e. the existing roadway
and conventional railway are performed in the fourth step.
4. Evaluation of Hong Kong to Mainland HSR
4.1. Project Description
The HKM-HSR, which will link West Kowloon Terminus
in Hong Kong to the Guangzhou South Railway Station in
Guangzhou Shibi, will form part of the 16,000 kilometers
national HSR network (see Fig. 2). By means of this new
HSR corridor, the journey time between Guangzhou and
the urban area of Hong Kong would be reduced from 100
minutes to 48 minutes. The brief project data is
summarized in Table 1.
38 R. Tao, S. Liu, C. Huang, and C.M. Tam

Step 1

Cost estimation

Infrastructure costs Operating costs External cost

Cumulative PV of total cost (TC)

Step 2

Social benefit estimation

Ticket Travel time Pollution Reliability Safety

revenue savings reduction improvement improvement

Cumulative PV of total social benefit (TSB)

Step 3
Project NPV calculation (NPV= TSB-TC)

Positive Negative

Project Project
approved disapproved

Step 4
Compared with other relevant transport
alternatives (i.e. road and conventional railway)
 
Fig. 1. The proposed research framework
 

 
Fig. 2. Route of Hong Kong to mainland high-speed rail

Journal of Engineering, Project, and Production Management, 2011, 1(1), 36-45

 Cost-Benefit Analysis of High-Speed Rail Link between Hong Kong and Mainland China 39
Table 1. Brief data of Hong Kong to mainland HSR (Source: Highway Department of HKSAR)
Maximum operating speed
West Kowloon (Hong Kong) ~ Shibi
Termini Speed 200km/h (Hong Kong
(Guangzhou)
Section)
Futian (Shenzhen),
Intermediate Between Hong Kong and
Longhua(Shenzhen), Humen
stations Futian, Shenzhen: 14min
(Dongguan)
Estimated Journey Between Hong Kong and
Route Length Approximately 26km in Hong Kong Time Shenzhen North: 23min

Between Hong Kong and

Minimum 3min intervals
Guangzhou South: 48min

90 / 24 pairs of trains between Hong Approximately 10,000

Maximum Passenger
Kong and Shenzhen/ Guangzhou at passengers per hour per
Capacity
the initial period direction
Scheduled Train
Frequency There is a train to Shenzhen every 15
Commencement Date Jan, 2010
min, and to Guangzhou every 30 min

33 couples of trains to 16 cities in Estimated Completion

2015
mainland per day Date

More than 17,000 jobs in first five

years
About 9,000 jobs in peak-hour (in About 99,000 passengers
Passenger Flow
Job Opportunity 2013); per day travelling between
Volume (in 2016)
HK and mainland by HSR
About 2,000 clerical and technical/
professional stuff

About USD$6.42 to Shenzhen Project Costs USD $ 8.02 billion

Price of The Tickets
About USD$16.70 to Dongguan 15% of that of airplane
Carbon Emission
About USD$23.13 to Guangzhou 25% of that of car/bus

Environmental Reduction of air pollutants by some 600 tonnes of NOx and respirable suspended particulates
Protection per year and 160,000 tonnes of CO2 per year
 

4.2. Cost Estimation
The total cost of building and operating a HSR line
consists of three main parts, namely infrastructure costs,
operating costs and external cost (De Rus, 2008). The cost
estimation of HKM-HSR line is detailed below.
4.2.1. Infrastructure costs
The infrastructure costs of a new HSR involve: planning
and land costs, infrastructure building costs and
superstructure costs (International Union of Railways,
2005). The planning and land costs include the feasibility
studies, technical design, land acquisition, legal and
administrative fees etc., and usually take up 10% of the
total infrastructure costs. Infrastructure building costs
involve terrain preparation and platform building, which is
one of the major costs of the HSR investment and range
from 15% to 50% of the total cost. Lastly, the rail specific
elements such as tracks, sidings along the line, signaling
systems, catenary, electrification communication and
safety equipment etc., which are critical to make sure the
HSR can reach a high speed over 250km per hour, are
summarized as superstructure costs (De Rus, 2008).
According to the Highway Department of HKSAR (2010),
the construction period of the HKM-HSR line is five years
(from 2010 to 2015). The total infrastructure cost/ initial
outlay (Ci) is USD$8.02 billion. The planning and land
costs reach up to 19% (USD$1.52 billion) and the
infrastructure building costs and superstructure costs take
up the rest 81% (USD$6.50 billion).
4.2.2. Operating costs
The operating costs involve three main parts: the HSR
services operating costs, infrastructure maintenance cost
and rolling stock maintenance cost. First, the operating
costs of HSR services include the costs of labor, energy
and other materials consumed by the tracks, terminal,
traffic management and safety systems, etc. In accordance
with De Rus (2008), the operating costs of HSR services is
about USD$67,840.16 per seat per year. As a result, the
annual operating cost of HSR services (Cs) is

Journal of Engineering, Project, and Production Management, 2011, 1(1), 36-45

40 R. Tao, S. Liu, C. Huang, and C.M. Tam
USD$679.04 million under the assumption that 10,000
seats in service each year. Second, the maintenance cost of
infrastructure is estimated at the level of USD$40,742.64
per km per year. Therefore, the annual infrastructure
maintenance cost (Cm1) is USD$1.06 million within the 26
km length of Hong Kong section. Third, for the rolling
stock maintenance cost, it is about USD$5,432.35 per seat
per year. As a result, the annual rolling stock maintenance
cost (Cm2) is USD$54.3 million. Lastly, the total annual
operating cost is equal to the sum of Cs, Cm1 and Cm2, that
is USD$ 734.43 million. The total cumulative PV of
operating costs (Co) is worked out to be USD$ 11,575.95
million using Eq. (1).
N
C s  Cm1  Cm 2
Co  
(1)
t 1 (1  i ) t
where:
i: the social discounting rate. Given the high rate of
inflation in Hong Kong, 6% social discounting rate is
applied in this paper (Popkin et al., 1980; Brown, 2005);
t: the tth year in operation;
N: the project’s life expectancy is 50 (years) in this paper.
4.2.3. External cost
Building the HSR and operating trains will bring about
negative environmental effects in terms of land
resumption, barrier effects, visual intrusion, noise, air
pollution and contribution to global warming. All of these
negative effects will bear environmental costs, which are
referred to be the external cost. According to De Rus
(2008), the external cost of 1000 passengers per kilometer
is equal to USD$14.13 per year. Since 99,000 passengers
will travel between Hong Kong and the mainland by using
this 26km length HKM-HSR line per day (Mass Transit
Railway, 2010), the annual external cost of this project is
about USD$0.07 million. Then, the cumulative PV of
external cost (Ce) is USD$1.15 million.
4.2.4. Cumulative PV of total cost
The cumulative PV of the total cost (TC) of the HKM-
HSR is equal to the sum of Ci, Co and Ce, that is
USD$19,594.57 million.
4.3. Social Benefits
The main sources of social benefits arising from the
investment of HSR involve not only the general economic
benefits, i.e. ticket revenue, but also the other social
benefits like travel time savings, pollution reduction,
reliability and safety improvement. Although some
researchers believed that HSR would speed up the regional
economic development, the empirical evidence suggested
that transport infrastructure was only a necessary
condition for economic development. It is hard to accept
that HSR changes substantially the basic parameters of the
regional economic development (De Rus and Inglada,
1997). Therefore, this paper only estimates the
aforementioned five main types of social benefits.
4.3.1. Ticket revenue
In accordance with Highway Department of HKSAR
(2009), the ticket price of Hong Kong HSR section will be
“affordable” for most of the travelers with an average
price of USD$17.99. In addition, about 99,000 passengers
Journal of Engineering, Project, and Production Management, 2011, 1(1), 36-45
will travel between Hong Kong and the mainland using
HSR each day (Mass Transit Railway, 2010). As a result,
the annual ticket revenue (Btr) of Hong Kong HSR section
will reach USD$ 650.13 million on average.
4.3.2. Travel time savings
The total user travel time includes access and egress time,
waiting time and within vehicle time. In accordance with
De Rus (2008), when the original mode is a conventional
railway with operating speed below 100km per hour, the
HSR will save 45-50 minutes for distances in the range of
350-450 km. While comparing the HKM-HSR with the
conventional railway, assuming that they both have the
same access, egress and waiting time, HSR will save about
40 minutes. In addition, the average value of travel time
savings (VTTS) is equal to USD$ 17.11 per person per
hour with an assumption of the traffic composition of 50%
business trips, 30% commuting trips and 20% others
(Rotaris et al., 2010). Hence, the average annual social
benefit of travel time savings (Bts) could be derived as
USD$412.44 million.
4.3.3. Pollution reduction
HSR is not only a high-tech transport mode but also using
a sustainable and environmental friendly technology.
According to Highway Department of HKSAR (2009), the
carbon emission of HSR is just 15% of that of airplane and
25% of that of car. In addition, the research result of
Transport Bureau of HKSAR (2000) showed that HSR
could reduce the air pollutants by 600 tonnes of NOx and
160,000 tonnes of CO2 per year. In accordance with
Maibach et al. (2007), the average value of pollution
reduction in CO2 and NOx emissions in big cities is
USD$33.95 per tonne and USD$7,741.10 per tonne
respectively. As a result, the average annual social benefit
of pollution reduction (Bpr) is about USD$ 10.08 million.
4.3.4. Reliability improvement
The unreliability in travel time is one of the biggest
problems in transportation. HSR can effectively reduce
such kind of uncertainty and improve the reliability level
in terms of avoiding congestion and delays. Compared
with roadway and conventional railway, HSR has
outstanding reliability benefits which should be included
in the CBA (Eliasson, 2009). The value of reliability
improvement is estimated based on the ratio of VTTS,
which is about 13.7% (Transport for London, 2007).
Therefore, the annual social benefit of reliability
improvement (Bri) is about USD$56.50 million.
4.3.5. Safety improvement
HSR is one of the safest modes of passenger transportation
and could help reduce the traffic accidents. The number of
people killed and injured on the highway is expected to
decrease by approximately 14% associated with the
introduction of HSR (De Rus, 2008). The social life and
property loss caused by traffic accidents is connected with
the real GDP per capita (GDP pc) of the country (or
district). In 2010, the GDP pc of Sweden is USD$48875,
while Hong Kong’s GDP pc is USD$ 31591 (IMF, 2011),
64.64% of that of Sweden. Thereby, the value of accident
reduction and life saving can be estimated on the basis of
recommended Swedish valuations (64.64% of those of
Sweden), that is USD$2.54 million per statistical life
saved, USD$0.45 million per avoided serious injury and
USD$0.02 million per avoided slight injury (Eliasson,
 Cost-Benefit Analysis of High-Speed Rail Link between Hong Kong and Mainland China 41
2009). In addition, according to the Road Traffic Accident
Statistics Report (Transport Department HKSAR, 2009),
the annual number of people killed, serious injury and
slight injury on the highways within Hong Kong are 139,
2096 and 18,903 respectively. Therefore, the annual social
benefit of safety improvement (Bsi) is about USD$245.41
million.
4.3.6. Cumulative PV of total social benefits
The cumulative PV of total social benefits (TSB) can be
worked out as USD$21,663.06 million using the following
equation.
N Btr  Bts  B pr  Bri  Bsi
TSB  
t 1 (1  i ) t
4.4. NPV of HSR
Considering the previous discussion, the HSR services
operating cost (Cs) is probably to be affected by alteration
of design, duration and some other factors which usually
happen during the construction process. In addition, it
takes a large proportion of the total operating cost of the
project. Thereby, Cs is altered in the range of -20% to
+20% with an interval of 10%. The results in Table 2
show that the NPV changes from -103.49% to +103.49%
accordingly, and when Cs increases by 19.33%, the NPV
decreases to zero.
Annual rolling stock maintenance cost (Cm2) included
in operating cost of HKM-HSR project is another
influence parameter which has much effect on the NPV.
(2) This factor is also made to fluctuate within the bounds of -
20% to +20% in Table 3, which causes the change in NPV
floats between -8.28% and +8.28%. Meanwhile, the
lowest NPV in this range is USD$1,897.24 million.

The NPV of HSR is equal to the cumulative discounted
PV of total social benefits (TSB, USD$21,663.06 million)
minus the cumulative discounted PV of total cost (TC,
USD$19,594.57 million). The result of this paper shows
that the HKM-HSR has a positive NPV (USD$2,068.49
million), which demonstrates that the project provides net
gain in benefits and thus is worth to be carried out.
4.5 Sensitivity Analysis of CBA
The accuracy of CBA is easily affected by some erratic
elements such as population size, the economic growth
rate, different levels of transportation services and
competitive pressures exercised by alternative modes of
transport (Tanaka and Monji, 2010; Bowe and Lee, 2004).
In order to insure that the results of CBA is stable and
reliable, sensitivity analysis is applied and to provide a
general idea of the extent of the potential impacts given by
the elements mentioned above.
Table 2. Sensitivity analysis of the impact of changes in Cs on net present value (NPV) of the project (USD$, million)
For the total social benefits, passenger flow per day is
no doubt a crucial factor. It is revealed on the ticket
revenue (Btr) and has a direct impact on the total income
of this project. Hence, in some sense, it plays a make-or-
break role in this project. In Table 4, the NPV is estimated
with every change of passenger flow by 10% in the range
of -30% to +20%. It reveals that the NPV will always be
positive till the passenger flow reduces by 20.20%.
In this study, a discount rate of 6% which is considered
more appropriate for the project is adopted (Popkin et al.,
1980). For the sake of checking the magnitude of impact
on the NPV caused by different discount rates, two rates
of 4.8% and 8% were selected to calculate the NPV
respectively and the results are presented in Table 5.
All the analysis above indicated that the different
factors which would have potential effect on the NPV of
the HKM-HSR project have a great extent for changing
and will not lead the project to failure.

% Change in Cs Actual Cs Total Cost (TC) NPV Change in NPV (%)

-20 543.24 17,453.97 4,209.09 103.49
-10 611.14 18,524.27 3,138.79 51.74
0 679.04 19,594.57 2,068.49 0
10 746.95 20,664.87 998.19 -51.74
19.33 810.28 21,663.06 0 -100.00
20 814.85 21,735.17 -72.11 -103.49

Table 3. Sensitivity analysis of the impact of changes in Cm on net present value (NPV) of the project (USD$, million)

Change in Cm (%) Actual Cm Total Cost (TC) NPV Change in NPV (%)
-20 43.46 19,423.33 2,239.74 8.28
-10 48.89 19,508.95 2,154.12 4.14
0 54.32 19,594.57 2,068.49 0
10 59.76 19,680.20 1,982.87 -4.14
20 65.19 19,765.82 1,897.24 -8.28

Journal of Engineering, Project, and Production Management, 2011, 1(1), 36-45

42 R. Tao, S. Liu, C. Huang, and C.M. Tam
Table 4. Sensitivity analysis of the impact of changes in population (each day) on net present value (NPV) of the project
(USD$, million)
Change in
Actual Ticket revenue Total Social
passenger NPV Change in NPV (%)
passenger flow (Btr) Benefit (TSB)
flow (%)
-30 69300 455.00 18,589.86 -1,005.22 -148.60

-20.21 79002 518.69 19,594.57 0 -100.00

-20 79200 520.00 19,614.37 19.80 -99.04
-10 89100 585.00 20,638.89 1,044.31 -49.51

0 99000 650.13 21,663.06 2,068.49 0

10 108900 715.00 22,687.91 3,093.33 49.55

20 118800 780.00 23,712.42 4,117.84 99.07

Table 5. Impact of changes in discount rate on net present value (NPV) of the project (USD$, million)

Discount rate 4.8% 6% 8%

Total cumulative present value of
13,832.85 11,575.95 8,984.61
operating Costs (Co)
Total cost (TC) 21,851.61 19,594.57 17,003.24

Total social benefit (TSB) 25,889.67 21,663.06 16,815.66

NPV 4,038.19 2,068.49 -187.58

Change in NPV (%) 12.23 0 -14.01

5. Discussion respectively (Mass Transit Railway, 2010). So, the annual

Each mode of passenger transportation has its own
advantages and disadvantages. The evaluation of the HSR
investment should not focus on the sum of NPV only, but
the comparison of the other relevant transport alternatives
(i.e. the existing roadway and conventional railway) as
well. In this section, HSR is set as a benchmark to
examine and compare with the existing roadway (Lo Ma
Chou, LMC) and conventional railway transports
(Kowloon-Canton Railway, KCR) linking Hong Kong to
the mainland (Guangzhou Termini). For the cost
estimation: first, compared with the new investment of
HSR, both the LMC and KCR do not require
infrastructure cost/ initial outlay. Second, the operation
cost of roadway is about USD$1606.06 km per year and
conventional railway is just 40% of that of HSR (Chang,
2008). Hence, the annual operation cost of LMC and KCR
is USD$0.35 million and USD$336.63 million
respectively. In addition, the external cost of LMC is
about four times that of HSR and KCR requires the same
amount as that of HSR.
For the social benefits: first, the passenger flow
volume of LMC and KCR is about 118,000 and 10,000
per day with average fares of USD$5.14 and USD$25.05
ticket revenue (Btr) is USD$221 million for LMC and
USD$91.45 million for KCR. Second, the total travel time
of LMC and KCR is about 3.5 hours and 100 minutes
respectively. Compared with the HSR, KCR has a zero
annual benefit of travel time savings (Bts) and LMC, which
requires a much longer travel time, has a negative Bts (-
USD$1.23 billion). Third, compared with the HSR, LMC
has a zero annual benefit of pollution reduction (Bpr),
reliability improvement (Bri) and safety improvement (Bsi).
On the other hand, the KCR has approximate 60% Bpr,
75% Bri and 85% Bsi of those of HSR (Highway
Department of HKSAR, 2010). The results of the cost,
benefit and NPV comparison among HSR, LMC and KCR
are summarized in Table 6.
As shown in Table 6, despite of the highest capital cost,
the investment of HSR still provides the largest positive
NPV with more than USD$ 2068.49 million among the
three passenger transportation modes. Conventional
railway also has a positive NPV (about USD$177.60
million) due to its balance performance in all kinds of
aspects. Roadway transport is the only alternative that has
a negative NPV (-USD$15885.60 million). This is mainly
due to its longest travel time which causes a large negative
impact on the benefit of travel time savings.

Journal of Engineering, Project, and Production Management, 2011, 1(1), 36-45

 Cost-Benefit Analysis of High-Speed Rail Link between Hong Kong and Mainland China 43
Table 6. Cost, benefit and NPV comparison among HSR and other transport alternatives
Mode of passenger transportation
(million USD$) Conventional railway
HSR Road (LMC)
(KCR)
Costs:
Infrastructure costs (initial
1 Ci 8,017.47 - -
outlay)
2 Operating costs Co 11,575.95 5.57 5,313.12

· operating cost of service Cs 679.04 306.82

0.35
· infrastructure
Cm1 1.06 0.42
maintenance cost
· rolling stock maintenance
Cm2 54.32 - 29.88
cost
3 External cost Ce 1.15 4.62 1.15
4 Sum of costs (1+2+3) 19,594.57 10.18 5,314.27

Social benefits:
5 Ticket revenue Btr 650.13 221.00 91.45
6 Travel time savings Bts 412.44 -1,228.32 -
7 Pollution reduction Bpr 10.08 - 6.05
8 Reliability improvement Bri 56.50 - 42.38
9 Safety improvement Bsi 245.41 - 208.60
Sum of social benefits
10 21,663.06 -15,875.42 5,491.87
(5+6+7+8+9)×15.76

NPV (10-4) 2,068.49 -15,885.60 177.60

Notes: the social discounted rate is 6%, the project life time is 50 (years) and the uniform series present worth factor
(USPWF) is 15.76.

6. Conclusion
Investing in high-speed rail is a significant social decision.
One of the major drawbacks of HSR is its high capital cost.
However, the public decision makers should not only
focus on the financial cost, but also the potential positive
impacts on the society. HSR can bring about some social
benefits in terms of ticket revenue, travel time savings,
pollution reduction, reliability and safety improvement, etc.
A cost-benefit analysis of HKM-HSR line is provided in
this paper. The results show that this project has a positive
NPV up to USD$2068.49 million, which fully
demonstrates that the investment of this HKM-HSR is
worth to be carried out. Moreover, other relevant transport
alternatives (i.e. the existing roadway and conventional
railway) are also examined and compared with the
investment of HSR. Because of the excellent performance
in ticket revenue, travel time savings and safety
improvement, HSR has the largest positive NPV among
these three passenger transportation modes. In conclusion,
HSR is the most cost-effective solution among the above
three alternatives for the intercity transport between Hong
Kong and Canton.
References
Auzannet, P. (1997). Quelle méthode d’évaluation pour
les transports en milieu urbain. Transp Public, Janvier.
Bowe, M. and Lee, D. (2004). Project evaluation in the
presence of multiple embedded real options: evidence
from the Taiwan high-speed rail project. Journal of
Asian Economics, 15, 71-98.
Brand, D., Kiefer, M. R., Parody, T. E., and Mehndiratta,
S. R. (2001). Application of benefit-cost analysis to
the proposed California high-speed rail system.
Transportation Research Record: Journal of the
Transportation Research Board, 1742, 9-16.
Brown, M. H. (2005). Economic Analysis of Residential
Fire Sprinkler Systems. Maryland, U. S. A.: National
Institute of Standards and Technology.
Campos, J. and De Rus, G. (2009). Some stylized facts
about high speed rail. A review of HSR experiences
around the world. Transp Policy, 16, 19-28.
Chang, Z. H. (2008). The life cycle maintenance cost
control for expressway. Master thesis, Shandong
University.

Journal of Engineering, Project, and Production Management, 2011, 1(1), 36-45

 44 R. Tao, S. Liu, C. Huang, and C.M. Tam
Damart, S. and Roy, B. (2009). The uses of cost-benefit
analysis in public transportation decision-making in
France. Transp Policy, 16, 200-212.
De Rus, G. (2008). The Economic Effect of High Speed
Rail Investment. Discussion Paper No. 2008-16.
International Transport Forum. OECD, Pairs.
De Rus, G. and Inglada, V. (1997). Cost benefit analysis
of the high-speed train in Spain. The Annals of
Regional Science, 13, 175-188.
Dijkman, H., Koopmans, C., and Vromans, M. (2000).
Cost-Benefit analysis of high speed rail. CPB report
2000/2, Netherlands Bureau for Policy Assessment.
The Hague, 39-42.
Eliasson, J. (2009). A cost–benefit analysis of the
Stockholm congestion charging system.
Transportation Res Part A, 43, 468-480.
Highway Department of HKSAR. (2009). The Hong
Kong Section of Guangzhou-Shenzhen-Hong Kong
Express Rail Link FAQs. Retrieved from
http://www.hyd.gov.hk/xrl/xrl_faq_eng.html on
November 16th 2010.
Highway Department of HKSAR. (2010). Hong Kong
section of Guangzhou-Shenzhen-Hong Kong Express
Rail Link-News. Retrieved from
http://www.hyd.gov.hk/xrl/xrl_news_eng.html on
November 16th 2010.
International Monetary Fund. (2011). World Economic
Outlook database. Retrieved from
http://www.imf.org/external/pubs/ft/weo/2011/01/weo
data/download.aspx on November 16th 2010.
International Union of Railways. (2005). High Speed
Rail’s leading asset for customers and society. UIC
Publications. Paris.
Janic, M. (2011). Assessing some social and
environmental effects of transforming an airport into a
real multimodal transport node. Transportation
Research Part D: Transport and Environment, 16(2),
137-149.
Maibach, M., Schreyer, C., Sutter, D., van Essen, H.P.,
Boon, B.H., Smokers, R., Schroten, A., Doll, C.,
Pawlowska, B., and Bak, M. (2007). Handbook on
estimation of external cost in the transport sector.
Produced within the study Internalization Measures
and Policies for All external Cost of Transport,
IMPACT, Delft, CE.
Martin, F. (1997). Justifying a high-speed rail project:
social value vs. regional growth. The Annals of
Regional Science, 31, 155-174.
Mass Transit Railway. (2010). Express Rail Link Service-
Frequency and Capacity. Retrieved from
http://www.expressraillink.hk/en/ticketing-
info/notice-to-passengers.html on November 16th
2010.
Nash, C.A. (1991). The case for high speed rail. Institute
for Transport Studies. Working Paper 323, University
of Leeds, UK.
Nickel, J., Ross, A. M., Rhodes, and D .H. (2009).
Comparison of project evaluation using cost-benefit
analysis and multi-attribute trade space exploration in
the transportation domain. Second International
Symposium on Engineering Systems. MIT, Cambridge,
Massachusetts, 15-17.
Popkin, B. M., Solon, F. S., Femandez, T., and Latham,
M. C. (1980). Benefit-cost analysis in the nutrition
area: a project in the Philippines. Social Science and
Medicine, 14C, 207-216.
Journal of Engineering, Project, and Production Management, 2011, 1(1), 36-45
Rotaris, L., Danielis, R., Marcucci, E., and Massiani, J.
(2010). The Urban road pricing scheme to curb
pollution in Milan, Italy: Description, impacts and
preliminary cost-benefit analysis assessment.
Transportation Research Part A, 44, 359-375.
Tanaka, Y. and Monji, M. (2010). Application of
postassessment of kyushy shinkansen network to
proposed U.S. high-speed railway project.
Transportation Research Record: Journal of the
Transportation Research Board, 1742, 9-16.
Transport Bureau of HKSAR. (2000). Railway
Development Strategy 2000. Retrieved from
http://www.legco.gov.hk/yr99-
00/english/panels/tp/papers/legcobr.pdf on November
16th 2010.
Transport Department. (2009). Road Traffic Accident
Statistics Report. Hong Kong SAR Government.
Transport for London. (2007). Congestion charging.
Central London congestion charging scheme: ex-post
evaluation of the quantified impacts of the original
scheme. Prepared by Reg Evans, for Congestion
Charging Modeling and Evaluation Team.
Tudela, A., Akiki, N., and Cisternas, R. (2006).
Comparing the output of cost benefit and multi-
criteria analysis, an application to urban transport
investments. Transportation Res Part A, 10, 414-423.
Vickerman, R. (1997). High-speed rail in Europe:
Experience and issues for future development. The
Annals of Regional Science, 31, 21-38.
Ran TAO received the M.Sc. degree
in construction management from the
City University of Hong Kong,
Kowloon, Hong Kong, China, in
2008. He is currently a Ph.D. student
in the Department of Building and
Construction, City University of
Hong Kong. His current research
interests include mathematical
optimization modeling, life cycle cost analysis of large
infrastructures.
Sha LIU received the Bachelor’s
degree in Faculty of Infrastructure
Engineering from Dalian University
of Technology, Dalian, China, in
2009. She is currently a Ph.D.
Student in the Department of
Building and Construction, City
University of Hong Kong. Her
current research interests include life
cycle energy analysis of structures, estimation and
reduction of carbon emissions in construction.
Chun HUANG received the Master’s
degree in Disaster Mitigation
Engineering from the University of
Science and Technology Beijing,
Beijing, China, in 2008. He is
currently a Ph.D. student in the
Department of Building and
Construction, City University of
Hong Kong. His current research
interests include operations research in construction,
visualization in construction.
   Cost-Benefit Analysis of High-Speed Rail Link between Hong Kong and Mainland China 45

Prof. Chi Ming TAM has been

teaching at the City University of
Hong Kong since 1986. In 1984, he
took a Master of Science program in
Loughborough University, UK.
After returning from UK, he worked
as a project manager. He obtained a
PhD in the same university in 1993.
He has been serving as leaders of
several teaching programs. Currently, he is a professor in
the Department of Building & Construction at City
University of Hong Kong. His research interests include
productivity studies, quality and safety management,
procurement systems, performance evaluation, and
modeling and simulation.

Journal of Engineering, Project, and Production Management, 2011, 1(1), 36-45

View publication stats